Turning the Fragmented Sustainability Compliance Landscape Into a Benefit

In today’s global economy, companies must comply with the differing mandatory sustainability disclosure rules of the various jurisdictions.

California has implemented climate disclosure and climate risk rules, and other states are considering following suit, although climate rules nationally have been disbanded. The International Sustainability Standards Board (ISSB) has established is own rules, while the European Union requires corporate sustainability reporting for certain companies.

Estimates claim that half of the companies that would have had to have report under the U.S.’s now disbanded rules will still have to do so, whether internally or to other jurisdictions that mandate it, said Richard Howitt, strategic adviser on corporate responsibility and sustainability during a recent Reuters Events webinar.

Forty percent of the world’s economy may soon be covered by climate disclosure rules, according to the World Resources Institute. It’s not only the European Union and North America, but also Brazil, China, Singapore, Turkey and other countries, said Howitt, a former member of the European Parliament, during “State Lines, International Fines: Avoid the Pitfalls of Fragmented Regulation.”

“How are companies supposed to decide between what they do and how to do things better in what is a very fragmented landscape?” he asked.

Also, should they approach compliance as a mandatory requirement or as a value-add for the company?

How Two Companies Manage

Consistent compliance is essential, said panelist Thomas Zaborowski, head of sustainability at Bayer. He added, “Compliance always needs to be hand-in-hand with the way we do our businesses.”

For the companies that already have a solid and responsible sustainability approach, the compliance piece is simply translating that within the different framework and formats of the various jurisdictions, he said. The biggest challenge is that companies need to learn how to translate their efforts better, he said.

Differing reporting and compliance requirements aren’t changing how Takeda approaches the compliance landscape, said Hollie Grant, the company’s director of global sustainability. Takeda is already addressing what matters to the company and its stakeholders, she said.

However, she said the company is taking a proactive approach, looking to the future to be ready for change. Due to the extra reporting burden, the company needs to be extra efficient with its resources and have extra governance in place, she said.

Compliance or Value Creation?

A common disclosure language can reduce the burden on companies, said Neil Steward, director of corporate outreach at the IFRS Foundation, a nonprofit organization established to develop enforceable and globally accepted accounting and sustainability disclosure standards.

Thirty-six jurisdictions are already using or have adopted ISSB standards for climate and other sustainability disclosure, he said. “We’ve already surpassed around 60 percent of global gross domestic product (GDP) and 40 percent of market (capitalization) covered by ISSB standards — and interestingly, 50 percent of greenhouse gas emissions around the world,” he said.

What’s driving this, he said, is the need for (1) a common language, (2) an easier disclosure process for companies and (3) company reporting that is useful to investors.

Investors are increasingly concerned about the carbon footprint of businesses and the metrics that assess a company’s performance. Such standards are about creating value for all parties: jurisdictions, companies and investors — as well as the global environment.

The ISSB standards enable companies, Steward said, to find a way “of assessing and identifying what the risks and opportunities are that could reasonably be expected to affect their cash flows, cost of capital, and access to capital over the short, medium and long term.” They also help companies identify the metrics that could help investors assess the company’s prospects, he said.

Companies need to change the mindset from compliance to value creation: linking sustainability to a company strategy, to risk management and governance, Steward said.

(Image credit: Getty Images/Khanchit Khirisutchalual)